Unsaleables Management Program Competitive Benchmark Report

August 7th, 201x

Background

Benchmarking is a highly valued way to assess a company’s performance to identify opportunities and trends that currently exist. The following is a redacted benchmark report from one of our larger clients (Company X) as its related to their unsaleables management program and how DRS Product Returns identified opportunities to implement in their process to drive improvements and significantly lower this cost.

Call to Action

Before reviewing this report, ask yourself the following questions; are your unsaleables costs increasing and you are not sure why? Is your unsaleables management program on par with your competitive peer set? If not, are you putting yourself at a competitive disadvantage? Are you adapting to changing forces in the reverse logistics marketplace like the “Amazon effect” appropriately and fast enough to not lose more profitability than necessary? A benchmark study from DRS could be the ideal place to begin your series of corrective actions to address any of these opportunities head on.

1 Objective

Compare Company X’s unsaleables management program (overall approach, practices, policies and rates) to other best-in-class CPG unsaleables management programs. By identifying how your program measures up against other existing programs, this report will highlight any gaps in your current program and provide you with high level recommendations to address these opportunities.

2 Executive Summary

No-return Adjustable Rate Programs (ARP) based on a shared responsibility approach, pressure to deliver new item innovation, product stewardship, sustainability and disposal of potentially hazardous items at retail are just some of the forces being exerted on CPG unsaleables management programs today. To have a best-in-class approach to the management of unsaleables, CPG manufacturers must continue to evolve and adapt to these forces, which are only becoming more and more complex over time. As financial pressures and expectations mount, progressive CPG companies look towards their unsaleables management program as a means of establishing a sustainable, competitive advantage.

With your recent acquisition, it is a positive development for your organization that interest in, and visibility to unsaleables management has been increasing as of late. With your larger size, scope and scale in the OTC landscape, upgrading your unsaleables management approach is necessary for Company X to address your current competitive disadvantage as it relates to unsaleables management. Gaps identified below are compared to other best-in-class ARP manufacturers, with a focus on your Segment X competitive set. Recommendations are provided as a means for Company X to close any gaps identified so that Company X’s unsaleables management program can move closer to best-in class during this strategic and pivotal time with the recent integration. By improving your overall unsaleables management approach now, improved financial performance as it relates to your unsaleables management through a best-in-class program is highly attainable.

Company X’s first opportunity to bring its program towards a best-in class status is to xxxxxxxxx. The rationale for xxxxxxxxx is that it will ensure that your program remains xxxxxxxxx.

As a by-product of your xxxxxxxxx, implementing and embracing an ongoing xxxxxxxxx related to your unsaleable management strategy is your next opportunity as it relates to your unsaleables management program. This xxxxxxxxx should be the means to xxxxxxxxx, and what impact this has on your unsalable rates.

Building upon this specific opportunity, Company X should look to leverage xxxxxxxxx to reduce your incidence of unsaleables.

In many instances, a well-managed and executed unsaleables program that contains these elements can deliver year over year bottom line profit improvement in the $x00,000 – $x,000,000 range or greater, for a company similar in size and scope to Company X. Many times, this reduction to your cost of doing business is the equivalent to the profit contribution that would be associated with the addition of a new small to mid-size customer or brand extension / acquisition!

This should then set the stage for Company X to complete xxxxxxxxx, and so on. Most well developed xxxxxxxxx programs will support the statement that xxxxxxxxx.

As you constantly xxxxxxxxx and are also xxxxxxxxx with your retailer partners on many of these improvement opportunities, their overall unsaleables incidence with your products is also decreasing over time. This in turn will make you a more valued partner as your focus and resources (funding) can be shifted away from processing returns, reconciling deductions and redeployed towards an enhanced, customer centric operating model. In this new model, Company X can support driving more profitable sales growth because of your new approach to unsaleables management, putting you on par with other leading CPG ARP manufacturers and giving you a competitive advantage over those manufacturers who still choose not to participate in such a strategic approach to managing their unsaleables related expenses.

3 Unsaleables Management Program Benchmarking

Factoring in your previous, xxxxxxxxx with your xxxxxxxxx, we would have to grade your unsaleables management program xxxxxxxxx. When we narrow our focus to your competitive set in the Segment X space, you are operating at a distinct competitive disadvantage. The recent activity around xxxxxxxxx, and including the integration of the Acquired Company Y’s business units into this new environment are all positive steps in the right direction to bringing your program up to par in 201x.

3.1.1 Highlights

Updating your xxxxxxxxx

Company X’s decision to xxxxxxxxx

3.1.2 Gaps

Historical xxxxxxxxx

Lack of xxxxxxxxx

Company X’s lack of xxxxxxxxx for xxxxxxxxx

Using xxxxxxxxx and xxxxxxxxx towards lowering your incidence of unsaleables

3.1.3 Recommendations

At a minimum, continue xxxxxxxxx so that you bring it up to par with your competitive set to help reduce your annual unsaleables expenses

To further maximize the benefit (cost reductions) to Company X, you can xxxxxxxxx could reduce your unsaleables expense during this span more than $x,000,000.

Xxxxxxxxx to have more latitude in their Brand’s P&L for investment in top line sales growth

Implement xxxxxxxxx to provide greater xxxxxxxxx, both inside and outside of your organization

To assist in further integrating xxxxxxxxx, utilize xxxxxxxxx

Where not limited to, this is especially important in the X Class-of-Trade given your product line and go to market strategies, as most leading retailers in this class are willing to engage in xxxxxxxxx in your end to end supply chain. Many best-in-class programs are xxxxxxxxx with at least 6 different retail partners annually. Additionally, many best-in-class manufacturers will xxxxxxxxx

3.2 Unsaleables Management Policies Overview

Considering the recent xxxxxxxxx. All indications are that Company Xis xxxxxxxxx to be in line with other best in class CPG/OTC manufacturers.

3.2.1 Highlights

Xxxxxxxxx

3.2.2 Gaps

Xxxxxxxxx

3.2.3 Recommendations

Utilize xxxxxxxxx

Include xxxxxxxxx

Reconsider xxxxxxxxx

3.3 Unsaleables Management Rate Overview

After xxxxxxxxx your xxxxxxxxx rate is above the average in this benchmark study (see table below). When we focus on your direct competitive set, you are xxxxxxxxx.

3.3.1 Highlights

The fact that Company X has xxxxxxxxx is a step towards getting your program xxxxxxxxx

Incorporating the xxxxxxxxx

3.3.2 Gaps

The fact that xxxxxxxxx is questionable as this indicates that xxxxxxxxx you are xxxxxxxxx

In the period since xxxxxxxxx, more of your items are xxxxxxxxx which should translate to xxxxxxxxx

Recent consultation revealed that Company X is taking an approach where you are xxxxxxxxx and doing so under a potentially flawed approach when compared to industry best practices. Best-in-class ARP rate calculation will take into xxxxxxxxx. In the shared responsibility model, if xxxxxxxxx is reflected as such in your rate calculation. Conversely, if the data indicated that there was xxxxxxxxx would be less favorable to Company X as you would xxxxxxxxx within the industry standard modeling

Lumping all other categories outside of your Nutritional business unit into one rate is not a recommended best practice

Even if your current data supports xxxxxxxxx, I would suggest that you xxxxxxxxx, leaving the door open for xxxxxxxxx moving forward, with xxxxxxxxx as warranted

DRS is only aware of xxxxxxxxx. Their program is xxxxxxxxx, they xxxxxxxxx and their rate is roughly xx% lower than your current rate of xx%

Rates listed with a “bold” font Comp are for categories that are direct competitors of Company X categories

Rates listed with an “un-bolded” Comp are similar to some of your categories

Rates with no “Comp” designation are for additional xxxxxxxxx categories not directly related to Company X’s categories but are provided as an additional point of reference

If we compare your current ARP rate of xxx to the overall average, you are approximately xx% higher

Compared to your more direct competitive set, you are roughly xx% higher than the average

3.3.3 Recommendations

Company X should consider xxxxxxxxx (refer to section 3.1 for more specifics), rooted in xxxxxxxxx, to enable Company X to benefit from the reduction in this expense.

Doing so would be a step in the right direction to not only bringing your program in line with best-in-class programs but would also enable Company X to bring their reimbursement rates more in line with other best-in-class programs

4 Conclusion

Unsaleables management continues to evolve over time, bringing forth new challenges and opportunities that need to be addressed. A well-defined unsaleables management strategy allows a CPG manufacturer to better understand the forces in their end-to-end supply chain that are adding to their unsaleables liability and react to these forces in such a way that they are controlling, and in many instances, reducing these costs over time. The fact that Company X has engaged DRS Product Returns in this exercise is a great next step in your overall approach to unsaleables management, however, you are only scratching the surface of what a well-managed ARP based unsaleables management can deliver to Company X in the way of significant annual savings through a reduction to you unsaleables expenses.

Company X has a unique opportunity at hand where it can xxxxxxxxx, at a time when your business is dramatically changing with the integration of the acquired company’s business. For several years now, Company X has xxxxxxxxx. Now is the time to xxxxxxxxx with a well-developed unsaleables management strategy that can add hundreds of thousands of dollars to your bottom line with no top line sales risk each year with the proper management and oversight.